8 ms·

The Rise of Micro Startup Acquisitions

86 points by carlchenet 12y ago

amelius 12y ago
An increase in number of acquisitions means a decrease in competition, a decrease in product diversity (random product discontinuations, with higher probability for good products) and a decrease of market modularity and flexibility. We should oppose this.
- yesimahuman 12y ago
  The way we oppose this is by educating, training, and supporting bootstrapped and aspiring startups. You'd sell, too, if things weren't looking so great. Pinterest would be an awesome opportunity in comparison.
  - rdlecler1 12y ago
    You're assuming that every entrepreneur wants to build a company. Maybe it was a couple of engineers who were just really passionate about a product that they'll get to continue working on with more resources and a nice cushion. This may be especially true for companies that are not going to be unicorns, but more like my little ponies. If you're capping out at a $50m business in 8 years and someone comes along and offers you $8m today that might be a pretty good deal.
- kybernetyk 12y ago
  >We should oppose this. Actually it depends. I would pop open a bottle of champagne if Google/Apple/FB bought out our competitors and mothballed their products. :)
- eru 12y ago
  > An increase in number of acquisitions means a decrease in competition, [...] Depends. Clear exit strategies will entice more people into the market. In the extreme case, if they never was any possibilities of getting acquired, we'd keep all the startups that get started and don't die. But far less startups would get started, yet alone funded.
beat 12y ago
The problem with this was explained to me by a M&A consultant... it's roughly the same amount of work for the acquisition team of a large company to buy a tiny company as it is for them to buy a much larger company. The problem isn't the cost, but rather the due diligence and bureaucratic bandwidth of the acquisitions team. So this is unlikely to become much of a trend, simply because it's too much work for the acquiring companies.
- threefour 12y ago
  I could see how that would be true in some cases, but in cases where the startup hadn't launched yet I would assume there's a lot less to audit.
- vonmoltke 12y ago
  I don't understand. Why doesn't the amount of work required to perform all the due diligence activities not scale with the size of the company?
  - Alex3917 12y ago
    Because they're not evaluating the things that scale. They're evaluating the founders, which is constant, and also the legal paperwork, which grows only linearly. The cost of valuating the company, negotiating, getting board consent, etc., are all basically constant.
    - vonmoltke 12y ago
      > Because they're not evaluating the things that scale. .. also the legal paperwork, which grows only linearly Um, that is something that scales. > The cost of valuating the company, negotiating, getting board consent, etc., are all basically constant. I don't see how that can be, though. If the company is just my friend and I, your "board consent" is just getting the two of us to say yes (assuming we are not structured as an LCC, in which case it is irrelevant). The cost of appraising a purchase is generally related to how much it is claimed to be worth. Ditto with negotiating; a higher price tag or larger organization brings more things to haggle over.
angelbob 12y ago
Founding a company with this in mind seems foolish. If you only have one likely acquirer, that's worse for you. If you're building a feature that depends on that acquirer, they will kill you off if you get big (see Twitter and other data suppliers.) So you're choosing a startup idea which can be lowballed on the offer (only one acquirer) if they like it, and you can't get big and succeed on your own. This looks great for big companies -- free R&D if the idea was bad. It looks awful for most founders.

86 points by carlchenet 12y ago

An increase in number of acquisitions means a decrease in competition, a decrease in product diversity (random product discontinuations, with higher probability for good products) and a decrease of market modularity and flexibility. We should oppose this.

yesimahuman 12y ago
The way we oppose this is by educating, training, and supporting bootstrapped and aspiring startups. You'd sell, too, if things weren't looking so great. Pinterest would be an awesome opportunity in comparison.
- rdlecler1 12y ago
  You're assuming that every entrepreneur wants to build a company. Maybe it was a couple of engineers who were just really passionate about a product that they'll get to continue working on with more resources and a nice cushion. This may be especially true for companies that are not going to be unicorns, but more like my little ponies. If you're capping out at a $50m business in 8 years and someone comes along and offers you $8m today that might be a pretty good deal.
kybernetyk 12y ago
>We should oppose this. Actually it depends. I would pop open a bottle of champagne if Google/Apple/FB bought out our competitors and mothballed their products. :)
eru 12y ago
> An increase in number of acquisitions means a decrease in competition, [...] Depends. Clear exit strategies will entice more people into the market. In the extreme case, if they never was any possibilities of getting acquired, we'd keep all the startups that get started and don't die. But far less startups would get started, yet alone funded.

beat 12y ago

The problem with this was explained to me by a M&A consultant... it's roughly the same amount of work for the acquisition team of a large company to buy a tiny company as it is for them to buy a much larger company. The problem isn't the cost, but rather the due diligence and bureaucratic bandwidth of the acquisitions team. So this is unlikely to become much of a trend, simply because it's too much work for the acquiring companies.

threefour 12y ago
I could see how that would be true in some cases, but in cases where the startup hadn't launched yet I would assume there's a lot less to audit.
vonmoltke 12y ago
I don't understand. Why doesn't the amount of work required to perform all the due diligence activities not scale with the size of the company?
- Alex3917 12y ago
  Because they're not evaluating the things that scale. They're evaluating the founders, which is constant, and also the legal paperwork, which grows only linearly. The cost of valuating the company, negotiating, getting board consent, etc., are all basically constant.
  - vonmoltke 12y ago
    > Because they're not evaluating the things that scale. .. also the legal paperwork, which grows only linearly Um, that is something that scales. > The cost of valuating the company, negotiating, getting board consent, etc., are all basically constant. I don't see how that can be, though. If the company is just my friend and I, your "board consent" is just getting the two of us to say yes (assuming we are not structured as an LCC, in which case it is irrelevant). The cost of appraising a purchase is generally related to how much it is claimed to be worth. Ditto with negotiating; a higher price tag or larger organization brings more things to haggle over.

angelbob 12y ago

Founding a company with this in mind seems foolish. If you only have one likely acquirer, that's worse for you. If you're building a feature that depends on that acquirer, they will kill you off if you get big (see Twitter and other data suppliers.) So you're choosing a startup idea which can be lowballed on the offer (only one acquirer) if they like it, and you can't get big and succeed on your own. This looks great for big companies -- free R&D if the idea was bad. It looks awful for most founders.